Construction – Adjudication – Company voluntary arrangement – Claimant company referring dispute to adjudication concerning payment due from defendants under contract for sub-structure works to house – Adjudicator ordering defendants to pay sums – Claim for summary enforcement of adjudicator’s decision – Defendants asserting existence of valid counterclaim to be dealt with by supervisors of CVA by way of set-off against sums due to claimants – Effect of CVA on adjudication decision – Whether appropriate for court to grant summary judgment – Claim dismissed
In 2007, the defendants engaged the claimant, on a written contract in the standard Joint Contracts Tribunal form for minor building works, to carry out sub-structure work to a house in Wilmslow, Cheshire. The claimant completed the works in April 2009, several months late, and claimed payment of sums substantially in excess of the original £262,000 contract price owing to variations and delays. By that time, the defendants had already paid £371,000.
In late 2010, the claimant entered into a company voluntary arrangement (CVA) with its creditors to resolve its financial difficulties. The list of creditors did not, at that stage, include the defendants. The CVA incorporated certain standard conditions, condition 23 of which concerned the making of payments. Condition 23(e) provided for the taking of an account of amounts due under mutual dealings between the company and a creditor that had arisen before the CVA was approved, with the sums due from each party to be set-off against each other so that the creditor could claim only the balance, if any owed by the company. Condition 23(f) dealt with the admission of proofs for inclusion in the CVA and permitted a creditor to apply to the court within a specified time to the extent that its proof was rejected by the CVA supervisor.
Having received little response to valuations submitted to the defendants, in May 2013 the claimant served notice of adjudication claiming payment of a further £279,956. By their response, the defendants primarily raised challenges to the jurisdiction of the adjudicator, contending that there was no crystallised dispute and that the existence of the CVA would prevent the claimant from enforcing any adjudicator’s award. The adjudicator found that he had jurisdiction and issued a decision requiring the defendants to pay £132,667 to the claimant. In proceedings brought by the claimant for summary enforcement of the adjudicator’s decision, the defendants abandoned their argument regarding the existence of a crystallised dispute but contended that they had a valid counterclaim for defective work, which, under the CVA arrangements, should be dealt with by the supervisors to enable the counterclaim to be deployed by way of set-off under condition 23.
Held: The claim was dismissed.
(1) A company that was subject to a CVA, while bound by the terms of that CVA, could otherwise carry on business and could sue or be sued. It was part of the claimant’s business to collect old debts and it had the right to pursue recovery of sums said to be due from the defendants. It could not be criticised for not knowing that that there was, or might be, a viable cross-claim or set-off from the defendants since none had been registered for the CVA or been raised, clearly or at all, before the adjudication. The existence of the CVA did not act as a bar on adjudication so as to prevent a company such as the appellant from pursuing adjudication for a pre-CVA debt; in that regard, a CVA was not akin to a liquidation, where it was the liquidator who had to take proceedings and there were restrictions on doing so. It followed that, once the defendants’ argument about the crystallisation of the dispute was abandoned, the adjudicator had jurisdiction to decide as he did and that his decision was prima facie enforceable. Although the impact of the CVA might have been a defence in the adjudication, the defendants had never argued it as such but had chosen to put it as a jurisdictional reservation.
(2) Summary judgment to enforce the adjudicator’s decision was none the less refused on the facts of the case. By virtue of section 5 of the Insolvency Act 1986, as reflected in the conditions of the CVA, the defendants were bound by the CVA even though they had not participated or registered their claim. The CVA conditions therefore fell to be construed as if they were contractually binding as between the claimant and the defendants. There had been mutual dealing between the parties before the CVA proposal was approved, in that there was a contract between the parties out of which the claim and cross-claim arose. The effect of condition 23(e) was that claims and cross-claims merged and were extinguished, so that, as between the claimant and the defendants, there was only a single claim represented by the balance of the account between them. There was no reason why the relevant account could not be taken by the CVA supervisors to enable any balance owed by the claimant to the defendants to be ascertained. Once that exercise was performed, any money that was shown to be due to the claimant could be paid, subject to the defendants’ right to refer the matter to the court within a short time. The court could then consider what effect, if any, the adjudication decision might have on its decision as to what should be done. If the accounting showed money due to the defendants, they would receive whatever proportion was available to creditors from the CVA. It was relevant that the adjudication was not one imposed by statute under the Housing Grants, Construction and Regeneration Act 1996, since the contract related to a residential development, and that the adjudication decision was undermined by the impact of the 1986 Act provisions about CVAs and the actual CVA. No res judicata or issue estoppel arose out of the adjudication. Accordingly, a summary judgment could be of little advantage to either party at the present stage, where the terms of the CVA enabled the account be reopened: Bouygues (UK) Ltd v Dahl-Jensen Ltd [2000] EWCA Civ 507 applied.
The appropriate order was to refuse summary enforcement of the adjudication decision and stay the proceedings until further order, with any further steps to await the outcome of the supervisors’ account.
Philip Vickers, of Greenwoods Solicitors LLP, of Peterborough) appeared for the claimant; Christopher Cook (instructed by DWF LLP, of Manchester) appeared for the defendants.
Sally Dobson, barrister
